Online Music Hushes in Face of Money Fight

June 26, 2007 — -- Silence speaks volumes for Internet radio stations today as they protest new fees and royalty rate hikes that could mute many of them permanently.

The day of silence by webcasters marks the latest jab in a legislative battle to roll back new fee structures put in place in March by the federal Copyright Royalty Board. The major note of contention stems from an annual $500 per channel minimum royalty payment set to go into effect next month and retroactively bill Web sites millions of dollars for the previous year. The new fees are scheduled to take effect July 15.

Announcements about the protest action by major providers like AOL, MTV Online and Live365, as well as small local and niche stations, will occasionally interrupt the gray noise. The hundreds of thousands of personalized digital radio streams built by sites like Pandora, Rhapsody and Yahoo will all unify in the Zenlike quiet.

Opponents say this fee clashes with the new media landscape where many outfits offer listeners a wide array of channels, each of which would be eligible for the $500 charge.

"It's going to be a disaster," said Tim Westergren, founder of Pandora, whose user-generated, multichannel model represents the entrepreneurial ventures threatened across the Internet. "If this goes through, even more pirate radio is going to pop up all over the Web. The innovation you're going to see is people getting around this law."

At least 52 million people listen to Internet radio monthly. This group includes desk workers who often tune in all day long and young people. Almost half of listeners make up the desirable 18-34 year-old demographic, according to industry research.

Music drifted from the Capitol building earlier this month during a recent concert of a coalition of artists singing support for a bill that would turn back the board's impending fees. Rep. Jay Inslee, D-Wash., took the stage and quoted Bob Dylan's "Time They Are A-Changin.'" He was joined by co-sponsor Rep. Donald Manzullo, R-Ill., who admitted to being a "rock 'n' roll freak."

"One of the first rights we preserved in 1776 was the right to petition your government for the redress of grievances, and the artistic community and the 70 million Americans who enjoy music over the Web have a big grievance," Inslee said.

According to Inslee and Manzullo, the Internet Radio Equality Music Act represents the redress. The bill would not only roll back the new decision, but would put Internet radio royalty fees in parallel with those fees being paid by satellite and traditional radio broadcasters.

As Internet music streams go silent for one day in protest, the two sides of this legislative battle both insist that they are fighting for artists' rights against corporate interests.

On the other side of the issue is an organization called SoundExchange, a nonprofit group empowered by Congress to collect royalties on behalf of artists and labels. SoundExchange argues that without these royalty fees, Internet radio stations are failing to pay artists their compensation.

SoundExchange counters that Tuesday's protest is not representative of free speech, but rather part of a lobbying effort by corporations -- like the radio behemoth ClearChannel -- that are trying to escape paying market royalty rates.

"I don't see any other way to characterize this as anything other than naked corporate greed. It's just not fair to artists," said John Stimson, executive director of SoundExchange.

Jake Ward, a spokesman from SaveNetRadio, countered, "It's disingenuous that this is a cash grab. Nobody can afford these royalty rates. Dead webcasters pay no royalty fees."

Trade groups and lobbying firms from the record and digital music industries are on both sides of this issue.

In light of the fact that everyone claims to be fighting for the little guy, one small operator, Bill Godsmith from RadioParadise, said, "No webcaster, regardless of their business model, can afford to pay the [Copyright Royalty Board] rates and remain in business."

An estimated 4.5 million people are tuned into Internet radio at any given moment, according to industry figures. One dedicated listener is office worker Mark Hiew, 25, who like many young professionals plays daily cuts from the BBC or KCRW from Santa Monica, Calif. "Internet radio is the delicious nectar of cubicle subsistence," wrote Hiew in an e-mail to ABC News.